Budget Deficit, Primary Deficit and Ponzi Games

The budget deficit, defined as the excess of government expenditures over revenues within a fiscal year, is a central indicator of a nation’s fiscal health and a critical variable in macroeconomic policy analysis. This paper examines the budget deficit from both theoretical and applied perspectives, integrating definitions, classifications, and competing economic interpretations. It explores the structural, cyclical, and political economy factors that contribute to fiscal imbalances, as well as the short- and long-term economic implications of persistent deficits for debt sustainability, inflation dynamics, private sector investment, and external sector stability. Special attention is given to the interaction between the budget deficit and the balance of payments through the twin deficits hypothesis, highlighting the mechanisms by which domestic fiscal policy can influence external imbalances. The paper also discusses the principal methods of financing budget deficits and assesses their macroeconomic consequences. The analysis culminates in a case study of the Republic of Moldova, providing historical trends, policy evaluations, and an assessment of fiscal–external linkages. The findings underscore the importance of maintaining a sustainable fiscal stance through a combination of prudent expenditure management, effective revenue mobilization, and coherent coordination between fiscal and monetary policies, while recognizing the role of temporary deficits in counter-cyclical economic management.